As 2021 draws to a close our thoughts all turn to enjoying the holidays. But don’t forget that right after the New Year begins, you’ll need to pay attention to taxes. The Internal Revenue Service (IRS) has several suggestions about steps you can take before the holiday season to make the tax season simpler and easier.
- Donate to charity. Although the limits on deducting charitable donations remain in place, you may still be able to take advantage of last minute financial support of a tax-exempt organization. Before making a donation the IRS recommends you confirm the status of the group through their Tax Exempt Organization Search web page. Also, you may be able to claim a deduction for a cash donation of up to $300 ($600 for married couples filing jointly) even if you do not itemize your deductions.
- Check the status of your Individual Taxpayer Identification Number. Some ITIN numbers expire on December 31, 2021 and must be renewed prior to filing your federal tax return. ITINs with middle digits 70 through 88 have expired. In addition, ITINs with middle digits 90 through 99, if assigned before 2013, have expired. Individuals who previously submitted a renewal application that was approved, do not need to renew again.
- Set up direct deposit of your refund. You are more likely to receive any tax refund due to you if you have it deposited directly into your bank account.
- Make a salary deferral. You can defer part of your 2021 salary (up to a limit of $19,200) to a retirement plan, which can help maximize the tax credit available for eligible contributions.
- Maximize a contribution to your retirement plan. An end-of-year contribution to an eligible retirement plan could help reduce your taxes. The IRS has information on retirement plans on their website.
- Get ready to file. Start organizing yourtax records now to help make preparing a complete and accurate tax return easier. Organizing now may help avoid errors that lead to processing delays and might also help you uncover overlooked deductions or credits. Among the records you should have ready before filing are:
- Forms W-2 from your employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan
- Other income documents and records of virtual currency transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage
- Letter 6419, 2021 Total Advance Child Tax Credit Payments to reconcile your advance Child Tax Credit payments
- Letter 6475, Your 2021 Economic Impact Payment, to determine whether you’re eligible to claim the Recovery Rebate Credit
Your best move is to open a conversation with your tax advisor now instead of waiting until the filing deadline approaches. Taxes have become too complex to leave to the last minute. If you do not have a trusted tax advisor we invite you to contact Gray, Gray & Gray at (781) 407-0300.